Capital Gains Tax on Bare Trust

[Nocton]

My wife and I have been investing in shares in a bare trust for our grandchildren. Each child has a designated account. Now one child is 18 we have transferred the assets out of the bare trust to her. I understand there is no CGT to pay on the transfer, but if the child now sells some of the shares, e.g. to transfer to an ISA, is the base/acquisition value for any CGT the value at the date of the transfer or the cost of all the cash payments made to buy shares going back to the date of the first investment? I have looked at https://www.gov.uk/trusts-taxes/trusts-and-capital-gains-tax, but it does not seem to cover this point.

[genou]

My wife and I have been investing in shares in a bare trust for our grandchildren. Each child has a designated account. Now one child is 18 we have transferred the assets out of the bare trust to her. I understand there is no CGT to pay on the transfer, but if the child now sells some of the shares, e.g. to transfer to an ISA, is the base/acquisition value for any CGT the value at the date of the transfer or the cost of all the cash payments made to buy shares going back to the date of the first investment? I have looked at https://www.gov.uk/trusts-taxes/trusts-and-capital-gains-tax, but it does not seem to cover this point.

It is the original cost - the children have always been the beneficial owners of the shares. Value at transfer to them from the trustees is irrelevant.

[Nocton]

TY, genou, that's what I thought/feared. This reduction in CGT personal allowance from £12,300 to £3,000 next year means that many trusts like ours for grandchildren will have large gains which could now incur CGT when they are sold, or in our grandchild's case, transferred to an ISA over the next few years. I've now checked our remaining grandchildren's bare trusts and will starting selling and buying back this tax year to at least take advantage of this year's £6,000 allowance. Why a Conservative government would start attacking small shareholders in this way, after previously attacking the dividend tax relief, I have no idea, but it shows desperation. It's more the sort of thing a socialist government would do. It's certainly no way to encourage more people to invest in shares. I hope that HMRC has been given more money/staff to cope with the many thousands more tax payers who will have to submit a SA form.

[Dod101]

TY, genou, that's what I thought/feared. This reduction in CGT personal allowance from £12,300 to £3,000 next year means that many trusts like ours for grandchildren will have large gains which could now incur CGT when they are sold, or in our grandchild's case, transferred to an ISA over the next few years. I've now checked our remaining grandchildren's bare trusts and will starting selling and buying back this tax year to at least take advantage of this year's £6,000 allowance. Why a Conservative government would start attacking small shareholders in this way, after previously attacking the dividend tax relief, I have no idea, but it shows desperation. It's more the sort of thing a socialist government would do. It's certainly no way to encourage more people to invest in shares. I hope that HMRC has been given more money/staff to cope with the many thousands more tax payers who will have to submit a SA form.

I can understand the anguish but logically why should such an asset be treated differently from any other asset? My grandchildren have got the same problem but that is just how life works. I do as well for my few remaining shares held via a paper certificate. Take advantage of the current regime whilst you can!

Dod

[genou]

TY, genou, that's what I thought/feared. This reduction in CGT personal allowance from £12,300 to £3,000 next year means that many trusts like ours for grandchildren will have large gains

Too late now, but what you should have been doing ( and this post is aimed at any reader not currently doing it ) was washing their gains each year to avoid this problem.

[Nocton]

Too late now, but what you should have been doing ( and this post is aimed at any reader not currently doing it ) was washing their gains each year to avoid this problem.

Yes, that's what I'm going to do from now on.

[Nocton]

but logically why should such an asset be treated differently from any other asset? Dod

I don't understand your point here, Dod. I am not saying that assets in bare trusts should be treated differently from investments held in other ways, just querying/complaining why the CGT allowance should be so drastically reduced, especially by a Conservative government which ostensibly wants, or so they said, to increase the number of private investors.
Over the last 10 years the attack on private investors has been savage. Like many retired people my wife and I rely on dividends for a lot of our retirement income. 10 years ago one got a 10% tax credit, now one gets taxed 7.5% - a dramatic difference which reduced our ability to gift aid.

[Howard]

but logically why should such an asset be treated differently from any other asset? Dod

I don't understand your point here, Dod. I am not saying that assets in bare trusts should be treated differently from investments held in other ways, just querying/complaining why the CGT allowance should be so drastically reduced, especially by a Conservative government which ostensibly wants, or so they said, to increase the number of private investors.
Over the last 10 years the attack on private investors has been savage. Like many retired people my wife and I rely on dividends for a lot of our retirement income. 10 years ago one got a 10% tax credit, now one gets taxed 7.5% - a dramatic difference which reduced our ability to gift aid.

Have I understood you correctly? Surely an increase in your (not your grandchildren's) capital gains tax bill and any increase in your income tax bill means an increase in your ability to gift aid?

regards

Howard

[Dod101]

but logically why should such an asset be treated differently from any other asset? Dod

I don't understand your point here, Dod. I am not saying that assets in bare trusts should be treated differently from investments held in other ways, just querying/complaining why the CGT allowance should be so drastically reduced, especially by a Conservative government which ostensibly wants, or so they said, to increase the number of private investors.
Over the last 10 years the attack on private investors has been savage. Like many retired people my wife and I rely on dividends for a lot of our retirement income. 10 years ago one got a 10% tax credit, now one gets taxed 7.5% - a dramatic difference which reduced our ability to gift aid.

As one who lives off his dividends , I cannot say I have noticed, but then I have been diligently fully subscribing to my ISA and its predecessors since I retired in 1994. I now have only two or three shares left outside of my ISAs and pay so little tax that I cannot afford to Gift Aid. Government would no doubt say that a husband and wife can put £40,000 a year into tax free ISAs; what more do they want?

Dod

[Nocton]

Have I understood you correctly? Surely an increase in your (not your grandchildren's) capital gains tax bill and any increase in your income tax bill means an increase in your ability to gift aid?

Say you have £1000 in dividends and need £800 for living expenses/income.
Old scheme:
Tax credit of £100, give £200 to charity plus £50 gift aid they claim = charity gets £250
New Scheme:
Tax bill leaving £925 so can give only £125 to charity plus £31.25 gift aid they claim = charity gets £156.25
It's no wonder that charities are complaining they are not getting as much as they used to.

And one should remember that Gordon Brown introduced the 10% tax credit to compensate for his tax raid on company dividends.

And the reduction in the CGT allowance means that many older people will be reluctant to sell as there is no CGT when you die, otherwise, as genou suggested, there will be a lot of unnecessary (except for tax reasons) churn to avoid paying the tax as much as possible.

[Nocton]

As one who lives off his dividends , I cannot say I have noticed, but then I have been diligently fully subscribing to my ISA and its predecessors since I retired in 1994. I now have only two or three shares left outside of my ISAs and pay so little tax that I cannot afford to Gift Aid. Government would no doubt say that a husband and wife can put £40,000 a year into tax free ISAs; what more do they want? Dod

If one wanted a retirement income of £30,000 then that would require capital of about £750,000 if a yield of 4% were taken. Putting £20,000 a year into an ISA would take 37.5 years, so you've done well Dod to be so diligent and also you retired a lot longer ago than I did.
In fact, it would have taken over 50 years to put £750,000 into ISAs by now, since the allowance was not raised to £20,000 until 2017 and it was £7,000 stocks & shares plus £3000 cash ISA in 1999. Of course, I have not allowed for capital growth, but most people are not Lord Lees.

In fact many have got much more capital than £750,000 and they are the ones, naturally, who give most to charity. As you say, you "pay so little tax that I cannot afford to Gift Aid". The result is that charities are feeling the pinch.

Of course, there are SIPPs and VCTs, but it just makes the tax system more complex, giving lots of work for tax accountants, and, as I mentioned, lots of extra work for HMRC. No wonder the 'tax book' has got so large.
I've also not mentioned the bizarre way in which capital gains and income tax are connected, so that paying more on one can push you into higher rate tax

.

[Dod101]

As one who lives off his dividends , I cannot say I have noticed, but then I have been diligently fully subscribing to my ISA and its predecessors since I retired in 1994. I now have only two or three shares left outside of my ISAs and pay so little tax that I cannot afford to Gift Aid. Government would no doubt say that a husband and wife can put £40,000 a year into tax free ISAs; what more do they want? Dod

If one wanted a retirement income of £30,000 then that would require capital of about £750,000 if a yield of 4% were taken. Putting £20,000 a year into an ISA would take 37.5 years, so you've done well Dod to be so diligent and also you retired a lot longer ago than I did.
In fact, it would have taken over 50 years to put £750,000 into ISAs by now, since the allowance was not raised to £20,000 until 2017 and it was £7,000 stocks & shares plus £3000 cash ISA in 1999. Of course, I have not allowed for capital growth, but most people are not Lord Lees.

In fact many have got much more capital than £750,000 and they are the ones, naturally, who give most to charity. As you say, you "pay so little tax that I cannot afford to Gift Aid". The result is that charities are feeling the pinch.

Of course, there are SIPPs and VCTs, but it just makes the tax system more complex, giving lots of work for tax accountants, and, as I mentioned, lots of extra work for HMRC. No wonder the 'tax book' has got so large.
I've also not mentioned the bizarre way in which capital gains and income tax are connected, so that paying more on one can push you into higher rate tax

.

Don’t forget that husband and wife have separate £20,000
and we used that. Wife died and it was left to me. Mostly my money which I used in her name of course.

Dod

[1nvest]

If one wanted a retirement income of £30,000 then that would require capital of about £750,000 if a yield of 4% were taken. Putting £20,000 a year into an ISA would take 37.5 years.

Selective long/short asset allocations can migrate significant amounts from General into ISA relatively quickly. Or SIPP on the way in (tax credits), migrate, and ISA on the way out (tax exempt). The neutral long/shorts can be revised to more preferred overall long (or short) exposure rather than being overall net neutral.